Barnes & Noble Inc. (BKS) was sued by a shareholder over the Securities and Exchange Commission’s investigation into the largest U.S. bookstore chain’s restatement of earnings and an ex-employee’s allegation of improper accounting.
The shareholder, David Shaev, accused company directors of breach of fiduciary duty and abuse of power in the lawsuit filed yesterday in New York state Supreme Court in Manhattan. Shaev asked a judge to order Barnes & Noble to improve its corporate governance and internal procedures, saying the restatement and the accounting allegations are “only two symptoms of a pervasive deficiency of internal controls.”
“Barnes & Noble has operated with deficient and inadequate financial reporting and inventory management systems since at least 2001,” Shaev said in his complaint. “These systems do not adhere to industrywide best practices and company internal audits have repeatedly shown them to be unreliable and subject to manipulation.”
Barnes & Noble this month disclosed in a regulatory filing that the New York office of the SEC notified the company that it had begun a probe into the restatement and the former employee’s allegation. The bookseller said it’s cooperating with the SEC and responding to requests for documents.
In July, New York-based Barnes & Noble restated earnings from fiscal 2008 to 2012. In the year ended April 28, 2012, the restated earnings narrowed the net loss to $64.8 million from $68.9 million because of “inadequate controls” for accounting overstated certain items.
A former employee, whom the company described as a non-executive, alleged that Barnes & Noble improperly allocated certain expenses between its Nook and retail segments for the purposes of reporting, according to the filing.
The investigation is the latest hurdle for Barnes & Noble, which has been losing money for more than three years as it grapples with a shift to digital books. The chain, which has more than 680 stores, has been heavily investing in its Nook digital unit to gain a foothold in electronic books.
Mary Ellen Keating, a spokeswoman for Barnes & Noble, didn’t immediately respond to an e-mail seeking comment on the suit.
The case is David Shaev Profit Sharing Account v. Riggio, 654339/2013, New York State Supreme Court, New York County (Manhattan.)
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